EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
PARALLEL TECHNOLOGIES, INC.,
DALIAN FUSHI BIMETALLIC MANUFACTURING COMPANY, LTD.,
THE PERSONS LISTED ON THE SIGNATURE PAGES HERETO AS MANAGEMENT OF
DALIAN FUSHI BIMETALLIC MANUFACTURING COMPANY, LTD.,
HELLER CAPITAL INVESTMENTS, LLC
AND
THE OTHER INVESTORS LISTED ON THE SIGNATURE PAGES HERETO
Dated as of December ___, 2005
TABLE OF CONTENTS
Page
1. DEFINITIONS....................................................................................................1
2. PURCHASE AND SALE OF SHARES....................................................................................6
(a) Purchase and Sale of Shares...........................................................................6
(b) The Closing...........................................................................................7
(c) Performance Adjustment................................................................................8
(d) Public Relations and Executive Searches...............................................................9
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY, ITS SUBSIDIARIES AND DALIAN FUSHI............................10
(a) Organization and Standing............................................................................10
(b) Authorization of Transaction.........................................................................10
(c) Noncontravention.....................................................................................11
(d) Capitalization.......................................................................................11
(e) Subsidiaries.........................................................................................11
(f) Disclosure Documents; Common Stock Trading...........................................................12
(g) Financial Statements.................................................................................13
(h) Events Subsequent to Most Recent Form 10-QSB.........................................................13
(i) No Undisclosed Liabilities; No Guaranties............................................................13
(j) Absence of Litigation................................................................................13
(k) Title to Assets......................................................................................14
(l) Legal Compliance.....................................................................................14
(m) Contracts............................................................................................14
(n) Employees; Employee Benefits.........................................................................14
(o) Intellectual Property................................................................................15
(p) Notes and Accounts Receivables.......................................................................16
(q) Tax Matters..........................................................................................16
(r) Dalian Fushi.........................................................................................17
(s) Books and Records....................................................................................18
(t) Certain Business Relationships.......................................................................18
(u) Private Offering.....................................................................................19
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Page
(v) Use of Proceeds......................................................................................19
(w) Powers of Attorney...................................................................................19
(x) Brokers' Fees........................................................................................19
(y) Certain Business Practices...........................................................................19
(z) Environmental and Safety Laws........................................................................19
(aa) Manufacturing and Marketing Rights...................................................................20
(bb) Employment of Wenbing Chris Wang.....................................................................20
(cc) Disclosure...........................................................................................20
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.....................................................................20
(a) Organization and Standing............................................................................20
(b) Authorization of Transaction.........................................................................21
(c) Brokers' Fees........................................................................................21
(d) No Registration......................................................................................21
(e) Acquisition for Investment...........................................................................21
(f) Risks of Investment..................................................................................21
(g) Accredited Investor Status...........................................................................21
(h) Disclosure of Information............................................................................21
(i) Investment Experience................................................................................22
5. REGISTRATION RIGHTS.................................................................................................22
(a) Registration by the Company..........................................................................22
(b) Priority Registrations...............................................................................23
(c) Registration Procedures..............................................................................23
(d) Lock-up..............................................................................................25
(e) Indemnification......................................................................................25
6. POST-CLOSING COVENANTS..............................................................................................26
(a) General..............................................................................................26
(b) American Stock Exchange..............................................................................26
(c) Board of Directors...................................................................................26
(d) Board of Advisors....................................................................................26
(e) Chief Financial Officer..............................................................................27
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(continued)
Page
(f) Name Change; Reverse Stock Split.....................................................................27
(g) Employee Stock Ownership Plan........................................................................27
(h) Executive Search.....................................................................................27
(i) Employment Agreements................................................................................27
(j) Transfer of Dalian Fushi Employees...................................................................27
(k) Compliance with Law..................................................................................27
(l) Completion of Restructuring..........................................................................27
(m) Filing of Registration Statement.....................................................................28
(n) Company Bylaws.......................................................................................28
7. CONDITIONS TO OBLIGATION TO CLOSE...................................................................................29
(a) Conditions to Obligation of the Investors............................................................29
(b) Conditions to Obligation of the Company, Dalian Fushi and Management.................................30
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.............................................................................31
(a) Survival of Representations and Warranties...........................................................31
(b) Indemnification Provisions for Benefit of the Investors..............................................31
(c) Matters Involving Third Parties......................................................................31
9. MISCELLANEOUS.......................................................................................................32
(a) No Third Party Beneficiaries.........................................................................32
(b) Entire Agreement.....................................................................................32
(c) Succession and Assignment............................................................................32
(d) Counterparts.........................................................................................32
(e) Headings.............................................................................................33
(f) Notices..............................................................................................33
(g) Controlling Law; Venue...............................................................................33
(h) Amendments and Waivers...............................................................................34
(i) Severability.........................................................................................34
(j) Expenses.............................................................................................34
(k) Construction.........................................................................................34
(l) Incorporation of Exhibits and Schedules..............................................................34
(m) Specific Performance.................................................................................35
(n) Disputes; Arbitration................................................................................35
-iii-
HELLER STOCK PURCHASE AGREEMENT
This Heller Stock Purchase Agreement (this "Agreement") is entered into as
of December ___, 2005, by and among Parallel Technologies, Inc., a Nevada
corporation (the "Company"), Dalian Fushi Bimetallic Manufacturing Company,
Ltd., a company organized under the laws of the People's Republic of China
("Dalian Fushi"), the persons listed on the signature pages hereto as management
of Dalian Fushi ("Management"), Heller Investments, LLC, a New Jersey limited
liability company ("Heller"), and the other investors listed on the signature
pages hereto (Heller and the other investors shall be referred to individually
as an "Investor" and collectively as the "Investors"). The Investors and the
Company are also referred to individually herein as a "Party" and collectively
herein as the "Parties."
PRELIMINARY STATEMENTS
A. Dalian Fushi currently engages in the business of manufacturing
bimetallic composite cable and wire products in China, which business will
become the business of the Company and its Subsidiaries (defined below) through
the restructuring and contractual arrangements with Dalian Fushi described below
(the "Business").
B. The Company has completed a share exchange with all of the stockholders
of Diversified Product Inspections, Inc. ("DPI") resulting in the Company
acquiring DPI and its wholly-owned subsidiary in China, Dalian Diversified
Product Inspections Bimetallic Cable Co., Ltd. ("WOFE").
C. WOFE and Dalian Fushi have entered into a series of Restructuring
Agreements and are in the process of completing the transactions contemplated in
the Restructuring Agreements, which transactions upon completion will result in
the Company, through its Subsidiaries, acquiring and/or leasing substantially
all the assets of, and certain additional rights of and to, Dalian Fushi, and
will have the effect of a reverse merger with Dalian Fushi (as more fully
described herein).
D. Previous to the above described share exchange and related acquisition,
the Company was a shell company without any significant assets.
E. The Company desires to raise a total of $12,000,000 funds through a
private placement offering.
F. On December 13, 2005, the Company issued and sold to certain investors
approximately 19.87% of the voting capital stock in the Company for a total
purchase price of $11,225,000 pursuant to a stock purchase agreement, as
amended, dated as of December 13, 2005, by and among the Company, Dalian Fushi
and its Management, Chinamerica Fund, LP, and the other investors listed therein
(the "December 13 Stock Purchase Agreement"). The investors that are parties to
the December 13 Stock Purchase Agreement are hereinafter referred to as the
"Initial Investors."
G. The Company desires to issue and sell to the Investors, and the
Investors desire to subscribe for and acquire from the Company, approximately
1.37% of the voting capital stock in the Company for a total purchase price of
$775,000 upon the terms and conditions hereinafter set forth.
1
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
The following terms used in this Agreement shall have the meanings set
forth below, provided that these definitions do not include terms used in
Section 2(c) that are otherwise defined in that Section.
"2005 Performance Shortfall" means the difference obtained by subtracting
the Actual Pre-Money Value from the Original Pre-Money Value.
"2006 Performance Shortfall" means the difference obtained by subtracting
the 2006 Net Profit from the 2006 Target Profit.
"Actual Pre-Money Value" means six times the 2005 Net Profit plus
$1,000,000.
"Acquired Assets" has the meaning set forth in Section 3(r).
"Adverse Consequences" means all Proceedings, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages,
investigation and/or remediation costs, dues, penalties, fines, costs of defense
and other costs, amounts paid in settlement, Liabilities, responsibilities,
Taxes, liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Agreement" means this Stock Purchase Agreement.
"Ancillary Agreements" means the Stock Escrow Agreement, as amended, the
PR Escrow Agreement, the Stock Purchase Agreement between Dalian Fushi and Glenn
Little and the amendment thereof, the Share Exchange Agreement between the
Company and all of the stockholders of DPI resulting in the Company acquiring
DPI and WOFE, and any other agreements or arrangements relating to the
transactions contemplated by this Agreement.
"Arbitration Notice" has the meaning set forth in Section 9(o).
"Business" has the meaning set forth in the Preliminary Statements.
"Capital Report" has the meaning set forth in Section 6(n).
"CA" shall mean Chinamerica Fund, LP, the Initial Investor's
representative under the terms of the December 13 Stock Purchase Agreement.
"Closing" has the meaning set forth in Section 2(b).
2
"Closing Date" has the meaning set forth in Section 2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning set forth in Section 2(a).
"Company" has the meaning set forth in the preface.
"Company Intellectual Property" means all intellectual property currently
used by the Company and its Subsidiaries (including Dalian Fushi) including,
without limitation, (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, trade names, domain names, service marks, brand
marks, brand names, service marks, trade dress, logos and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, industrial or other designs, drawings, specifications, customer
and supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium), and each license or
contract relating thereto that is material to the conduct of the Business.
"Company Disclosure Schedule" has the meaning set forth in Section 3.
"Confidential IP Information" has the meaning set forth in Section 3(o).
"Dalian Assets" has the meaning set forth in Section 3(r).
"Dalian Fushi" has the meaning set forth in the preface.
"December 13 Stock Purchase Agreement" has the meaning set forth in the
preface.
"Disclosure Documents" has the meaning set forth in Section 3(f).
"Dispute" has the meaning set forth in Section 9(o).
"DPI" has the meaning set forth in the Preliminary Statements.
"Dual Purposes Escrow Shares" has the meaning set forth in Section 2(c).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Encumbrance" means any claim, mortgage, servitude, easement,
encroachment, restrictive covenant, right of way, survey defect, equitable
interest, lease or other possessory interest, lien, option, pledge, security
interest, preference, priority, right of first refusal, environmental use
restriction or similar restriction.
3
"Entity" means any corporation (including any non profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, association, company (including any company limited by
shares, limited liability company or joint stock company), firm, society or
other enterprise, association, organization or entity.
"Environmental Laws" has the meaning set forth in Section 3(dd).
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date of any document purported to be prepared in accordance
with GAAP.
"Governmental Authorization" means any approval, consent, ratification,
waiver, authorization, franchise, license, permit (including environmental
permits) or registration issued, granted, given or otherwise made available by
or under the authority of any Governmental Body or pursuant to any Law.
"Governmental Body" means any (i) nation, region, state, province, county,
municipality, city, town, village, district or other jurisdiction, (ii) federal,
state, provincial, local, municipal, foreign or other government, (iii)
governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department or other Entity and any court or other
tribunal), (iv) multinational organization, (v) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, policy,
regulatory or taxing authority or power of any nature or (vi) official of any of
the foregoing.
"Hazardous Materials" has the meaning set forth in Section 3(dd).
"Heller" has the meaning set forth in the preface.
"Indemnified Party" has the meaning set forth in Section 8(d).
"Indemnifying Party" has the meaning set forth in Section 8(d).
"Initial Investors" has the meaning set forth in the preface.
"Intangible Rights" has the meaning set forth in Section 3(o).
"Investor" and "Investors" have the meanings set forth in the preface.
"IRS" means the Internal Revenue Service or any successor agency and, to
the extent relevant, the Department of Treasury.
"Law" means any foreign, federal, state and local statute, law,
constitution, treaty, rule, regulation, by-law, ordinance, code, regulation,
resolution, order, determination, writ, injunction, awards (including, without
limitation, awards of any arbitrator), judgment, decree, binding case law,
principle of common law or notice of any Governmental Body (for the avoidance of
doubt, including, but not limited to, the Laws of the United States of America
and the People's Republic of China).
4
"Liabilities" includes liabilities or obligations of any nature, whether
known or unknown, whether absolute, accrued, contingent, choate, inchoate or
otherwise, whether due or to become due, and whether or not required to be
reflected on a balance sheet prepared in accordance with GAAP, including any
Liability for Taxes.
"Management" has the meaning set forth in the preface.
"Material Contracts" has the meaning set forth in Section 3(m).
"Material" shall mean any event or circumstance that has, or is reasonably
likely to have, a significant adverse effect on the assets, results, goodwill,
business, operations or prospects of the Company or its Subsidiaries (including
Dalian Fushi) taken as a whole.
"Most Recent Fiscal Month End" has the meaning set forth in Section 3(g).
"NASD" means the National Association of Securities Dealers, Inc.
"Net Profit" means the net profit of the Company as determined in the
following manner: (i) promptly following the completion of the Company's audited
financial statements, the Company shall deliver to CA the net profit calculation
and the method for such calculation for the Company on a consolidated basis for
the applicable time period, prepared in good faith and reviewed by the Company's
auditors; (ii) following its receipt from the Company of the net profit
calculation and method, CA shall have 15 days to review the net profit
calculation and method and to inform the Company in writing of any disagreement
that it may have with the net profit calculation and method, which objection
shall specify in reasonable detail CA's disagreement with the net profit
calculation and method, including its calculation of net profit; (iii) if the
Company does not receive such objection within such 15 day period, the net
profit calculation and method delivered by the Company shall be deemed to have
been accepted by CA and shall become the Net Profit for purposes of the
applicable provision of Section 2(c), and (iv) if CA does timely deliver an
objection to the Company, then the provisions of Section 9(o) shall become
applicable.
"Original Investment Price" means the price per share of the Common Stock
(issuable upon conversion of the Preferred Stock) paid by the Investors under
this Agreement, which amount is $2.82 (as may be adjusted from time to time to
account for stock splits (as contemplated hereunder or otherwise), stock
dividends, recapitalizations, reclassifications or similar events).
"Original Pre-Money Value" means six times the 2005 Target Profit plus
$1,000,000, which amount is $41,500,000.
"Party" and "Parties" have the meanings set forth in the preface.
"Person" means an individual or an Entity, including a Governmental Body
or any other body with legal personality separate from its equityholders or
members, including if established by any Governmental Body.
5
"Plan" has the meaning specified in ERISA Section 3(3).
"PR Escrow Agreement" has the meaning set forth in Section 2(d).
"Preferred Stock" has the meaning set forth in Section 3(d).
"Proceeding" means any action, arbitration, audit, examination,
investigation, claim, demand, inquiry, hearing, litigation, suit or appeal
(whether civil, criminal, administrative, judicial or investigative, whether
formal or informal, and whether public or private) commenced, brought,
conducted, heard by or before or otherwise involving any Governmental Body or
arbitrator.
"Purchase Price" has the meaning set forth in Section 2(a).
"Registration Statement" has the meaning set forth in Section 5(a).
"Restructuring Agreements" means the documents annexed hereto as Exhibit
I.
"Restructuring Completion Date" has the meaning specified in Section 6(l).
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series B" has the meaning set forth in Section 2(a).
"Shares" has the meaning set forth in Section 2(a).
"Shortfall Percentage" means the quotient obtained by dividing the 2006
Percentage Shortfall by the 2006 Target Profit.
"Stock Escrow Agreement" has the meaning set forth in Section 2(c).
"Subsidiary" means any Entity with respect to which a specified Person (or
a Subsidiary thereof) owns a majority of the common stock or has the power to
vote or direct the voting of sufficient securities to elect a majority of the
directors (or members of a similar supervisory group) and, with respect to the
Company, expressly includes Diversified Product Inspections, Inc., a Delaware
corporation, and WOFE.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement required to be supplied to any governmental
authority relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
6
"Third Party Claim" has the meaning set forth in Section 8(d).
"Warrants" has the meaning set forth in Section 2(a).
"WOFE" means Dalian Diversified Product Inspections Bimetallic Cable Co.,
Ltd, a company organized under the laws of the People's Republic of China and a
wholly owned Subsidiary of the Company.
2. PURCHASE AND SALE OF SHARES.
(a) Purchase and Sale of Shares. On the basis of the representations,
warranties, covenants and agreements contained herein, and subject to the terms
and conditions hereof, the Company agrees to issue and sell to the Investors,
and the Investors, severally and not jointly, agree to purchase from the Company
for an aggregate purchase price of $775,000 (the "Purchase Price"):
(i) at the Closing an aggregate of 13,912.85 shares of Series B
Convertible Preferred Stock of the Company, par value $.001 per share ("Series
B"), having the rights, preferences and other terms set forth on Exhibit A,
which Series B is convertible into 274,479.17 shares of common stock of the
Company, par value $.006 per share ("Common Stock") upon the occurrence of a
contemplated reverse split (or such other amount reflecting no less than 1.37%
of the outstanding voting capital stock at the time of conversion);
(ii) such number of additional shares of Common Stock, if any,
issuable to the Investors pursuant to Section 2(c)(ii);
(iii) such number of additional shares of Common Stock, if any,
issuable to the Investors pursuant to Section 5(c)(iii); and
(iv) warrants in the form of Exhibit B (the "Warrants").
The number of shares of Series B and Common Stock and the number of Warrants to
be purchased by each Investor and the portion of the Purchase Price to be paid
by each Investor (together with the equivalent information for each Initial
Investor) is as set forth on Exhibit C. The shares of Series B and Common Stock
(including the Common Stock into which the Series B is convertible) listed in
(i)-(iii) are referred to as the "Shares."
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Guzov Ofsink, LLC
in New York, New York, commencing at 10:00 a.m., local time, on the date hereof
or at such other location, date and time as may be agreed upon between the
Investors and the Company, on which date this Agreement is signed by all the
Investors (the "Closing Date"). At the Closing, the Company shall issue and
deliver to each Investor:
(i) a stock certificate or certificates in definitive form,
registered in the name of such Investor, representing the Series B being
purchased by such Investor as set forth on Exhibit C; and
(ii) a certificate or certificates in definitive form, registered in
the name of such Investor, representing the Warrants being purchased by such
Investor as set forth on Exhibit C.
7
At the Closing, the Investors shall make payment in full of the Purchase Price
to the Company (or its designated person) for the Shares and the Warrants. At
the Closing, the Investors and the Company shall deliver to each other all of
the various certificates, instruments, and documents referred to in Section 7.
(c) Performance Adjustment.
(i) 2005 Performance Adjustment. The Company hereby represents to
the Investors that the Company's after Tax Net Profit on a consolidated, pro
forma basis, prior to costs directly attributed to this Agreement and the
transactions contemplated hereby, as reported under GAAP and as prepared by an
independent registered public accounting firm acceptable to the Investors for
the fiscal year ending 2005 ("2005 Net Profit") shall be at least $6,750,000
(the "2005 Target Profit"). The 2005 Net Profit shall be based upon the
performance of the Business in the form which it exists as of Closing (assuming
completion of the transactions contemplated by the Restructuring Agreements),
and shall not include any amounts from any Subsidiary, business division, assets
or contractual arrangement or other source of the Company acquired after the
Closing. As the Investors are relying on such expected profit in making their
investment hereunder, and in order to make whole the Investors in the event the
2005 Target Profit is not met and for the purposes of the indemnity provisions
under Section 8 of this Agreement, the Company has placed 3,000,000 shares of
Common Stock issuable upon the conversion of the Series A Convertible Preferred
Stock of the Company (based on post reverse split shares, subject to applicable
adjustment) which are owned by Management (the "Dual Purposes Escrow Shares")
into an escrow account for the benefit of the Investors (as well as the Initial
Investors) pursuant to an escrow agreement, dated as of December 13, 2005, by
and among the Company, Dalian Fushi, certain holders of the Series A shares, the
Initial Investors, and Gateway National Bank, N.A., as escrow agent, attached as
Exhibit E(1) (the "Stock Escrow Agreement"), amended by an amendment no.1 to the
Stock Escrow Agreement attached as Exhibit E(2) (the "Amendment to Stock Escrow
Agreement"). In the event that the Company does not generate the 2005 Target
Profit (as determined based on the Company's 2005 audited financial statements),
a number of Dual Purposes Escrow Shares, which shall not be more than 3,000,000
(based on post reverse split shares, subject to applicable adjustment), shall be
retired to the Company treasury as set forth below in order to maintain the
value of the Investors' investment in the Company (the "2005 Performance
Adjustment") pursuant to the terms of the Stock Escrow Agreement, as amended.
The 2005 Performance Adjustment shall be determined by (A) subtracting the
Actual Pre-Money Value from the Original Pre-Money Value to obtain the 2005
Performance Shortfall and (B) dividing the 2005 Performance Shortfall by the
Original Investment Price. The Company shall immediately redeem, retire or
otherwise cancel such number of the Dual Purposes Escrow Shares equal to the
2005 Performance Adjustment, but no more than 3,000,000 shares (based on post
reverse split shares, subject to applicable adjustment), as calculated pursuant
to this Section 2(c)(i).
Sample Calculation:
If the 2005 Net Profit is reported to be $6,250,000, the 2005 Performance
Adjustment would be calculated as follows:
1) (Original Pre-Money Value - Actual Pre-Money Value)
---------------------------------------------------
Original Investment Price
8
2) ($41,500,000 - $38,500,000)
---------------------------
$2.82
3) $3,000,000
---------- = 1,063,829.8 Dual Purposes Escrow Shares
$2.82
For avoidance of doubt, the 2005 Performance Adjustment under this
Section C(i) is intended for the benefit of all Investors under this
Agreement and all Initial Investors.
(ii) 2006 Performance Adjustment. The Company hereby represents to
the Investors that the Company's after Tax Net Profit on a consolidated, pro
forma basis, as reported under GAAP and as prepared by an accounting firm
acceptable to the Investors ("2006 Net Profit") for the fiscal year ending 2006
shall be no less than $10,700,000 (the "2006 Target Profit"). Except for the
acquisition of Dalian Tongfa New Materials Science and Technology Co., Ltd., the
2006 Net Profit shall be based upon the performance of the Business in the form
which it exists as of Closing (assuming completion of the transactions
contemplated by the Restructuring Agreements), and shall not include any amounts
from any Subsidiary, business division, assets or contractual arrangement or
other source of the Company acquired after the Closing. In the event the 2006
Net Profit is not equal to or greater than 90% of the 2006 Target Profit, the
Company agrees to issue a number of additional shares of Common Stock to the
Investors (the "2006 Performance Shares") pro rata in accordance their original
investment holdings as set forth on Exhibit C. The number of 2006 Performance
Shares shall be calculated by (A) subtracting the 2006 Net Profit from the 2006
Target Profit to obtain the 2006 Performance Shortfall, (B) dividing the 2006
Performance Shortfall by the 2006 Target Profit to obtain the Shortfall
Percentage and (C) multiplying the Shortfall Percentage by the number of shares
of Common Stock (issuable upon conversion of the Series B) originally issued to
the Investors under this Agreement. If the Shortfall Percentage is 10% or less,
no 2006 Performance Shares shall be issued to the Investors. For avoidance of
doubt, the 2006 Performance Adjustment under this Section C(ii) is intended for
the benefit of all Investors under this Agreement and all Initial Investors.
Sample Calculation:
If the 2006 Net Profit is reported to be $9,095,000, the number of 2006
Performance Shares would be calculated as follows:
1) 2006 Target Profit - 2006 Net Profit = 2006 Performance Shortfall
10,700,000 - 9,095,000 = 1,605,000
2) 2006 Performance Shortfall
--------------------------------- = Shortfall Percentage
2006 Target Profit
1,605,000
------------ = 0.15
10,700,000
9
3) Shortfall Percentage X Shares = 2006 Performance Shares
0.15 X 4,250,000 = 637,500 2006 Performance Shares
(d) Public Relations and Executive Searches. The Investors acknowledge
that $600,000 of the purchase price under the December 13 Stock Purchase
Agreement was delivered directly into escrow for the purpose of effecting an
integrated investor and public relations campaign, of which $500,000 of the
escrow funds will apply, and executive search costs, for which $100,000 of the
escrow funds will be used pursuant to the terms of an escrow agreement, dated as
of December 13, 2005, by and among Gateway National Bank, N.A., as escrow agent,
the Company and the Initial Investors, attached as Exhibit F (the "PR Escrow
Agreement"). The release of such portion of the Purchase Price from escrow will
be effected in accordance with the terms of the PR Escrow Agreement.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY, ITS SUBSIDIARIES AND
DALIAN FUSHI.
The Company, Dalian Fushi and Management, jointly and severally,
represents and warrants to each Investor that the statements contained in this
Section 3 are correct and complete as of the date of this Agreement except as
set forth in the disclosure schedule delivered by the Company to the Investors
on the date hereof (the "Company Disclosure Schedule"). The Company Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
(a) Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, with full and unrestricted corporate power and authority to own, operate
and lease its assets, to carry on the Business (and any other business) as
currently conducted (and proposed to be conducted), to execute and deliver this
Agreement and the Ancillary Agreements and to carry out the transactions
contemplated hereby and thereby. The Company has made available to the Investors
complete and correct copies of the charter and by-laws of the Company, with all
amendments thereto, as in effect on the date of this Agreement. The Company is
duly qualified to do business and is in good standing (to the extent such
concept is applicable in the relevant jurisdiction) in all jurisdictions in
which either the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such qualification, except
where the failure to so qualify will not have a material adverse effect on the
Business or financial condition of the Company and its Subsidiaries (including
Dalian Fushi), taken as a whole. All Governmental Authorizations required under
the Law of the People's Republic of China for the due and proper establishment
and operation of Dalian Fushi have been duly obtained from all relevant People's
Republic of China authorities and are in full force and effect. All filings and
registrations with the People's Republic of China authorities required in
respect of Dalian Fushi and their operations, including but not limited to the
registrations with the delegated authority of Ministry of Commerce, the State
Administration of Industry and Commerce, the State Administration for Foreign
Exchange, tax bureau and customs authorities have been duly completed in
accordance with applicable Laws. By the Restructuring Completion Date, all
Governmental Authorizations required under the Law of the People's Republic of
China for the due and proper establishment and operation of WOFE will be duly
obtained from all relevant People's Republic of China authorities and are in
full force and effect. By the Restructuring Completion Date, all filings and
registrations with the People's Republic of China authorities required in
respect of WOFE to commence and carry out its operations, including but not
limited to the registrations with the delegated authority of Ministry of
Commerce, the State Administration of Industry and Commerce, the State
Administration for Foreign Exchange, tax bureau and customs authorities have
been duly completed in accordance with applicable Laws.
10
(b) Authorization of Transaction. The Company has full corporate power and
authority to execute and deliver this Agreement and any applicable Ancillary
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and any Ancillary Agreements by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company, including any shareholder approval (including to complete the
transactions required hereby). This Agreement constitutes the valid and legally
binding obligation of the Company, enforceable in accordance with its terms and
conditions. The Company need not provide any notice to, make any filing with, or
obtain any authorization, consent or approval of any Governmental Body or any
other Person in order to consummate the transactions contemplated by this
Agreement or any Ancillary Agreement, except as set forth in Section 3(b) of the
Company Disclosure Schedule.
(c) Noncontravention. Except as set forth in Section 3(c) of the Company
Disclosure Schedule, the execution, delivery and performance by the Company of
this Agreement and any Ancillary Agreements, the fulfillment of and compliance
with the respective terms and provisions hereof and thereof, and the
consummation by the Company and any of its Subsidiaries (including Dalian Fushi)
of the transactions contemplated hereby and thereby, do not and will not: (i)
conflict with, or violate any provision of, any Law having applicability to the
Company, its Subsidiaries or Dalian Fushi, or any of their assets, or any
provision of the charter or bylaws of the Company or any of its Subsidiaries
(including Dalian Fushi); (ii) conflict with, or result in any breach of, or
constitute a default under any agreement, contract or other arrangement (whether
written or oral) to which the Company or any Subsidiary (including Dalian Fushi)
is a party or by which the Company, its Subsidiaries or Dalian Fushi or any of
their assets may be bound; or (iii) result in or require the creation or
imposition of or result in the acceleration of any indebtedness, or of any
Encumbrance of any nature upon, or with respect to any of the assets (including
the Shares) of the Company or any Subsidiary (including Dalian Fushi).
(d) Capitalization. The entire authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, of which 39,243,659 shares
are issued and outstanding, and (ii) 5,000,000 shares of preferred stock of the
Company, par value $.001 per share ("Preferred Stock"), with 785,000 designated
as Series A, of which 784,575.16 shares are issued and outstanding, and 216,000
designated as Series B, of which no shares are issued and outstanding. No other
capital stock or equity securities of or interests in the Company are authorized
or outstanding, and there are no shares of capital stock or other securities of
the Company reserved for future issuance. All of the issued and outstanding
shares of Common Stock and Preferred Stock have been duly authorized, are
validly issued, fully paid and nonassessable, were issued in compliance with all
applicable federal and state securities Laws and any other applicable Laws, and
are held of record by the respective stockholders as set forth in Section 3(d)
of the Company Disclosure Schedule. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, rights of first
refusal, pre-emptive rights, conversion rights, exchange rights or other
contracts or commitments (whether written or oral) that could require the
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock (including any instruments or securities convertible into capital
stock). There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company.
11
(e) Subsidiaries. Section 3(e) of the Disclosure Schedule sets forth (i)
the authorized capital stock of each direct and indirect Subsidiary of the
Company and the number of issued and outstanding shares of each class of its
capital stock (or other securities), the names of the holders thereof, and the
number of shares held by each such holder, (ii) the number of shares of its
capital stock held in treasury and (iii) the nature and amount of any such
equity investment, other interest or advance. All of such shares of capital
stock of Subsidiaries directly or indirectly held by the Company have been duly
authorized, are validly issued and fully paid and nonassessable. All of the
issued and outstanding shares (or other securities) of each Subsidiary were
issued in compliance with all applicable federal and state securities Laws and
any other applicable Laws. The Company directly, or indirectly through wholly
owned Subsidiaries, holds of record and beneficially owns all such shares of
capital stock of the direct or indirect Subsidiaries free and clear of all
Encumbrances. Each Subsidiary is an Entity duly organized, validly existing and
in good standing (to the extent such concept is applicable in the relevant
jurisdiction) under the Laws of its state or jurisdiction of incorporation (as
listed in Section 3(e) of the Company Disclosure Schedule) and in all
jurisdictions in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification. Each Subsidiary has the full and unrestricted power and authority
to own, operate and lease its assets and to carry on the Business (and any other
business) as currently conducted (and proposed to be conducted). Dalian Fushi
has the full and unrestricted power and authority to own, operate and lease its
assets and to carry on the Business (and any other business) as currently
conducted. Other than as contemplated by the Restructuring Agreements, there are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights or other contracts or commitments
that could require any Subsidiary to issue, sell or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation or similar rights with
respect to any Subsidiary. Other than as contemplated by the Restructuring
Agreements, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of any Subsidiary
(including Dalian Fushi). Other than as contemplated by the Restructuring
Agreement, neither the Company nor any of its Subsidiaries (including Dalian
Fushi) control directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association which is not a Subsidiary.
(f) Disclosure Documents; Common Stock Trading.
(i) The Company has timely filed with, or furnished to, the SEC each
form, proxy statement or report required to be filed with, or furnished to, the
SEC by the Company pursuant to the Exchange Act since July 6, 2005
(collectively, the "Disclosure Documents"), and no Disclosure Documents are
required to be filed with, or furnished to, the SEC prior to such date that were
not otherwise filed on a timely basis. The Disclosure Documents complied, as of
the date of their filing with the SEC, in all respects with the requirements of
the Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002 and the
rules and regulations promulgated thereunder. The information contained or
incorporated by reference in the Disclosure Documents was true, complete and
correct in all respects as of the respective dates of the filing thereof with
the SEC and, as of such respective dates, the Disclosure Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent updated or superseded by any Disclosure Document subsequently filed
by the Company with the SEC prior to the date hereof. To the knowledge of the
officers of the Company, there is no event, fact or circumstance that would
cause any certification signed by any such officer in connection with any
Disclosure Document pursuant to the requirements of the Sarbanes Oxley-Act of
2002 to be untrue, inaccurate or incorrect in any respect.
12
(ii) The financial statements of the Company included in the
Disclosure Documents have been prepared in accordance with the published rules
and regulations of the SEC and in conformity with GAAP applied on a consistent
basis throughout the periods indicated therein, except as may be indicated
therein or in the notes thereto, and presented fairly, in all material respects,
the consolidated financial position of the Company and its Subsidiaries as of
the dates indicated, and the consolidated results of the operations and cash
flows of the Company and its Subsidiaries for the periods therein specified
(except in the case of quarterly financial statements for the absence of
footnote disclosure and subject, in the case of interim periods, to normal
year-end adjustments).
(iii) The Common Stock is validly, properly and effectively
registered under the Exchange Act in accordance with all applicable federal
securities laws and is quoted on the OTC Bulletin Board. The Company is
currently in compliance with all applicable NASD and OTC Bulletin Board
requirements and standards. There is no revocation order, suspension order,
injunction or other Proceeding or Law (whether issued by the SEC, the NASD or
other Governmental Body) affecting the effectiveness of the Company's Exchange
Act registration or the trading of the Common Stock. The consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements do not
conflict with, and will not result in any violation of, any NASD or OTC Bulletin
Board trading requirement or standard applicable to the Company or its Common
Stock.
(g) Financial Statements. Attached hereto as Exhibit H are the unaudited
balance sheets and statements of income, changes in stockholders' equity and
cash flow (the "Financial Statements") as of and for the month ended September
30, 2005 (the "Most Recent Fiscal Month End") for each of the Company and Dalian
Fushi. The Financial Statements (including the notes thereto) have been prepared
in accordance with the requirements for the financial statements included in the
Company's Disclosure Documents. No Financial Statements are available for DPI
and WOFE as they are newly formed entities and have not conducted any business
as of the date hereof except for this Agreement, other Ancillary Agreements, and
the Restructuring Agreements.
(h) Events Subsequent to Most Recent Form 10-QSB. Except as set forth in
Section 3(h) of the Company Disclosure Schedule and as contemplated by this
Agreement or as set forth in any Ancillary Agreement and the Restructuring
Agreements, since the filing of the Company's Form 10-QSB for the quarterly
period ended September 30, 2005, there has not been any change in the Business,
capital structure, ownership, organizational documents, contractual
relationships, financial condition, operations, results of operations or future
prospects of the Company or any of its Subsidiaries (including Dalian Fushi).
(i) No Undisclosed Liabilities; No Guaranties. Except as set forth on
Section 3(i) of the Company Disclosure Schedule, in the financial statements of
the Company included in the Disclosure Documents and the financial statements
attached as Exhibit H, the Company and its Subsidiaries (including Dalian Fushi)
do not have any Liabilities. Except as set forth on Section 3(i) of the Company
Disclosure Schedule, none of the Company nor any of its Subsidiaries (including
Dalian Fushi) is a guarantor or otherwise liable for any Liability (including
indebtedness) of any other Person. Neither the Company nor any of its
Subsidiaries (including Dalian Fushi) is a party to, or has any commitment to
become a party to, any agreement, contract or other arrangement associated with
off balance sheet financing.
13
(j) Absence of Litigation. Except as set forth in the Disclosure
Documents, there is no Proceeding pending or threatened by or before any
Governmental Body against the Company or any of its Subsidiaries (nor is there a
basis for any of the foregoing). As of the date hereof, there is no Proceeding
pending or, to the Company's knowledge, threatened by or before any Governmental
Body (i) seeking to prevent, hinder, modify or challenge any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements, or (ii) that
would cause any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements to be illegal, invalid, voidable or otherwise rescinded.
(k) Title to Assets. Except as set forth in Section 3(k) of the Company
Disclosure Schedule, the Company or any of its Subsidiaries (including Dalian
Fushi) have good and marketable title to, or a valid leasehold interest in, free
and clear of all Encumbrances, all properties and assets (i) purportedly owned
or used by them or located on their premises, or (ii) necessary or advisable for
the conduct of the Business as currently conducted (or proposed to be
conducted). All facilities, machinery, equipment, fixtures, vehicles and other
assets and properties owned, leased or used by the Company or any of its
Subsidiaries (including Dalian Fushi) are in good operating condition and repair
(subject to ordinary wear and tear) and are reasonably fit and usable for the
purposes for which they are being used.
(l) Legal Compliance. Each of the Company and its Subsidiaries (including
Dalian Fushi) and their respective predecessors and Affiliates is currently in
compliance and, except to the extent that noncompliance will not and could not
reasonably be expected to have a material adverse effect upon the Business or
the financial condition of the Company and any of its Subsidiaries (including
Dalian Fushi) as currently conducted or proposed to be conducted, has been in
compliance with all applicable Laws, and no Proceeding has been filed or
commenced against any of them alleging any failure so to comply. Each of the
Company and its Subsidiaries (including Dalian Fushi) and their respective
predecessors and Affiliates will be in compliance with all applicable Laws after
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
(m) Contracts. Section 3(m) of the Company Disclosure Schedule lists all
contracts and other agreements (whether written or oral) to which any of the
Company or its Subsidiaries is a party (including Dalian Fushi) pursuant to
which the Company or any of its Subsidiaries (including Dalian Fushi) is to
receive, or is obligated to pay, more than $100,000 ("Material Contracts") or
which is otherwise Material to the Company and its Subsidiaries (including
Dalian Fushi) taken as a whole, specifying for each its date and the parties
thereto. The Company has made available to the Investors, a correct and complete
copy of each written agreement or other documentation (as amended to date)
listed in Section 3(m) of the Company Disclosure Schedule. With respect to each
such agreement: (i) the agreement is legal, valid, binding, enforceable, and in
full force and effect; (ii) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements; (iii) neither the Company nor its Subsidiaries (including
Dalian Fushi) have provided or received notice of breach or default and no event
has occurred which with notice or lapse of time could constitute a material
breach or default, or permit termination, modification, or acceleration, under
the agreement; and (iv) no party has repudiated any provision of the agreement.
The contracts and other agreements listed in Section 3(m) of the Company
Disclosure Schedule represent all Material Contracts required or necessary for
the Company and its Subsidiaries (including Dalian Fushi) to own, operate and
manage the Business as currently conducted (or as proposed to be conducted).
14
(n) Employees; Employee Benefits.
(i) Except as set forth in Section 3(n) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (including Dalian
Fushi) maintain any Plans (as defined in ERISA Section 3(3)) or any obligation,
arrangement or customary practice, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, officers, employees or agents.
(ii) Section 3(n) of the Company Disclosure Schedule lists all
current directors and officers of the Company and each Subsidiary (including
Dalian Fushi), showing each such person's name, position, and annual
remuneration, bonuses and fringe benefits for the current fiscal year. Other
than as contemplated hereby, there are no employment agreements with any such
Persons.
(iii) To the Company's knowledge, during the past 5 years no
director or officer of the Company or any Subsidiary has: (i) been arrested or
convicted for any crime material to an evaluation of such person's ability or
integrity, including, without limitation, any violation of any federal or state
law which currently or has previously regulated the types of business in which
the Company is currently or has previously been engaged; (ii) filed a petition
under federal bankruptcy or any state insolvency laws; or (iii) been a director
or officer of a business Entity which has filed a petition under federal
bankruptcy or any state insolvency laws, or had a receiver or similar officer
appointed by a court to administer the business or property of such Entity.
(iv) With regard to employment and staff or labor management, the
Company and each Subsidiary (including Dalian Fushi) have complied with all
applicable Laws in all material respects. Neither the Company, any of its
Subsidiaries or Dalian Fushi is aware that any officer or key employee, or that
group of key employees, intends to terminate their employment with them, nor
does the Company, any of its Subsidiaries or Dalian Fushi have a present
intention to terminate the employment of any of the foregoing.
(o) Intellectual Property.
(i) Except as set forth in Section 3(o) to the Company Disclosure
Schedule, the Company and its Subsidiaries own or have a right to use all
Company Intellectual Property, free and clear of any and all Encumbrances of any
kind, except where the failure to own or have a right to use such property or
such lien or encumbrance would not have a material adverse effect upon the
Business or the financial condition of the Company and any of its Subsidiaries
(including Dalian Fushi). All Company Intellectual Property and a listing of all
names under which the Company and its Subsidiaries (including Dalian Fushi) have
operated are set forth in Section 3(o) to the Company Disclosure Schedule.
Except as set forth in Section 3(o) to the Company Disclosure Schedule, the use
of the Company Intellectual Property by the Company and its Subsidiaries
(including Dalian Fushi) does not conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, domain name, patent, service mark, brand mark, brand
name, database, industrial design, trade secrets, technology, software, customer
lists, copyright or any pending application therefor of any other Person
(collectively, "Intangible Rights"), and the Company and the directors and
officers (and employees with responsibility for intellectual property matters)
of the Company and its Subsidiaries (including Dalian Fushi) do not have
knowledge of any claims thereof. Except as set forth in Section 3(o) to the
Company Disclosure Schedule, the use of all Company Intellectual Property will
not be adversely affected by the transactions contemplated in this Agreement.
15
(iii) The Company and its Subsidiaries (including Dalian Fushi) have
taken all reasonable and practicable steps to protect and preserve the
confidentiality of all Company Intellectual Property not subject to copyright or
patent rights ("Confidential IP Information"). Use by the Company and its
Subsidiaries (including Dalian Fushi) of Confidential IP Information not owned
by the Company and its Subsidiaries (including Dalian Fushi) have been and is
pursuant to the terms of a written agreement between the respective Company or
Subsidiary (including Dalian Fushi) and the owner of such Confidential IP
Information, or is otherwise lawful.
(p) Notes and Accounts Receivables. All notes and accounts receivable of
the Company and its Subsidiaries are reflected properly on the Financial
Statements and are valid receivables subject to no setoffs or counterclaims, are
current and collectible within 90 days after the Closing, subject only to the
reserve for bad debts set forth on the face of the balance sheet included in the
Financial Statements (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company and its Subsidiaries.
(q) Tax Matters.
(i) Except as set forth in Section 3(q) of the Company Disclosure
Schedule, each of the Company, its Subsidiaries and Dalian Fushi have timely
filed all Tax Returns that it was required to file under applicable laws and
regulations. All such Tax Returns were correct and complete in all respects at
the time of filing and were prepared in substantial compliance with all
applicable Laws. All Taxes due and owing by any of the Company, its Subsidiaries
or Dalian Fushi (whether or not shown on any Tax Return) have been timely paid.
None of the Company, its Subsidiaries, and Dalian Fushi currently is the
beneficiary of any extension of time within which to file any Tax Return. No
Proceeding has ever been commenced by any Governmental Body where any of the
Company, any of its Subsidiaries or Dalian Fushi does not file Tax Returns
asserting that the Company, its Subsidiaries, or Dalian Fushi was, is, or may be
subject to taxation by that Governmental Body. There are no Encumbrances on any
of the assets of any of the Company, its Subsidiaries or Dalian Fushi that arose
in connection with any failure (or alleged failure) to pay any Tax or file any
Tax Return.
(ii) Section 3(q) of the Company Disclosure Schedule lists all Tax
Returns filed with respect to any of the Company, its Subsidiaries or Dalian
Fushi for taxable periods ended on or after January 1, 2000, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit. Except as set forth in Section 3(u) of the Company
Disclosure Schedule, none of the Company, its Subsidiaries or Dalian Fushi has
received from any Governmental Body any (A) written notice indicating an intent
to open an audit or other review, (B) request for information related to Tax
matters, or (C) notice of deficiency or proposed adjustment for any amount of
Tax proposed, asserted, or assessed against the Company, its Subsidiaries or
Dalian Fushi. The Company has delivered to the Investors correct and complete
copies of all Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by any of the Company, its Subsidiaries or Dalian
Fushi since January 1, 2000.
(iii) Each of the Company, its Subsidiaries and Dalian Fushi have
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other Person.
16
(iv) No director or officer (or employee responsible for Tax
matters) of any of the Company, it Subsidiaries or Dallas Fushi expects any
Governmental Body to assess any additional Taxes for any period for which Tax
Returns have been filed.
(v) None of the Company, its Subsidiaries or Dalian Fushi has waived
any statute of limitations in respect of Taxes or agreed to an extension of time
with respect to a Tax assessment or deficiency.
(vi) None of the Company, its Subsidiaries or Dalian Fushi is a
party to or bound by any Tax allocation or sharing agreement. None of the
Company, its Subsidiaries or Dalian Fushi (A) has been a member of group of
Entities filing a consolidated Tax Return (other than a group the common parent
of which is the Company) or (B) has any liability for the Taxes of any Person as
a transferee or successor, by contract, or otherwise.
(vii) The unpaid Taxes of each of the Company and its Subsidiaries
did not, as of the Most Recent Fiscal Month End, exceed the reserve for
Liabilities pertaining to Taxes (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Financial Statements for the Most Recent Fiscal Month End.
(r) Dalian Fushi.
(i) As of the Closing Date, the Company and its Subsidiaries are in
the process of completing a series of transactions as set forth in the
Restructuring Agreements. The Business is the only business that Dalian Fushi
has been engaged in, and the Business is the only business currently engaged in
by the Company.
(ii) As a result of the Restructuring Agreements, and by the
Restructuring Completion Date, (A) WOFE shall have acquired, and Dalian Fushi
legally, validly and irrevocably shall have transferred to WOFE, in accordance
and compliance with all applicable Laws, the Business and all the properties and
other assets of Dalian Fushi as specifically identified in Section 3(r) of the
Company Disclosure Schedule (the "Acquired Assets") and as set forth in the
Restructuring Agreements, except for those certain assets separately identified
in Section 3(r) of the Company Disclosure Schedule, which assets shall remain
the property of Dalian Fushi (the "Dalian Assets"), (B) WOFE shall have acquired
those certain rights to such Dalian Assets as specified in Section 3(r) of the
Company Disclosure Schedule and as set forth in the Restructuring Agreements,
and (C) the Company is required as of the Closing Date to consolidate into its
financial statements those of DPI, WOFE and Dalian Fushi in accordance with GAAP
and as required under SEC Regulation S-X. The Acquired Assets and rights to the
Dalian Assets to be acquired by WOFE are adequate and satisfactory for the
conduct of the Business in the manner in which the Business is currently being
conducted and proposed to be conducted. Except as set forth in Section 3(r) of
the Company Disclosure Schedule, upon the Restructuring Completion Date, the
WOFE shall have good, valid and marketable title to, or a valid leasehold
interest in, all Acquired Assets and Dalian Assets free and clear of any and all
Encumbrances.
(iii) As a result of the Restructuring Agreements, and by the
Restructuring Completion Date, the Company shall have, directly or indirectly
through WOFE, acquired all rights, whether directly or indirectly through its
Subsidiaries, to the control, management and election of the Board of Directors
(or similar supervisory group) of Dalian Fushi and to otherwise operate the
Business. These rights include all rights with respect to the voting of any and
all securities of Dalian Fushi entitled to, or otherwise having the right to,
vote and to operate the Business, including any part remaining in Dalian Fushi.
17
(iv) As a result of the Restructuring Agreements and the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, the ownership structure and capitalization of Dalian Fushi
and WOFE will be as set forth in Section 3(r) of the Company Disclosure
Schedule, which includes for each of them its authorized/registered capital
stock and the number of issued and outstanding shares of each class of its
capital stock (or other securities), the names of the holders thereof, and the
number of shares held by each such holder
(v) Copies of all Restructuring Agreements used to acquire or
evidence the Acquired Assets and the rights to Dalian Assets by WOFE are
attached as Exhibit I in their final executed form. With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable, and in full
force and effect under all applicable Laws; (B) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements; (C) neither the Company nor its
Subsidiaries (including Dalian Fushi) have provided or received notice of breach
or default and no event has occurred (or would occur) which with notice or lapse
of time would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreement; (D) no party has repudiated
any provision of the agreement; and (E) the agreement cannot be terminated,
unwound, invalidated, voided or otherwise rescinded for any reason, event,
action or circumstance, whether as a result of the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement or
otherwise.
(vi) Dalian Fushi has obtained from the Bank of China and the
Industrial and Commerce Bank of China written consents that are required in
connection with the contemplated transactions of this Agreement, including, but
not limited to, the Restructuring Agreements. As such, the lease for the Leased
Assets contemplated under the Restructuring Agreements will be effective at
Closing.
(s) Books and Records. Except as set forth in Section 3(s) to the Company
Disclosure Schedule, the books of account, minute books, equity record books and
other records of the Company and its Subsidiaries (including Dalian Fushi), all
of which have been made available to the Investors prior to Closing, are
accurate and complete in all material respects and have been maintained in
accordance with sound business practices including the maintenance of an
adequate system of internal controls (including for purposes of making the
certifications required by the Sarbanes Oxley Act of 2002 in connection with the
Disclosure Documents). Except as set forth in Section 3(s) of the Company
Disclosure Schedule, each transaction of the Company and its Subsidiaries
(including Dalian Fushi) is properly and accurately recorded on the books and
records of the respective Company or Subsidiary, and each document (including
any contract or other agreement, invoice or receipt) on which entries in the
Company's and its Subsidiaries' (including Dalian Fushi's) books and records are
based is accurate and complete in all material respects. The minute books of the
Company and its Subsidiaries contain accurate and complete records of all
meetings held of, and corporate action taken by, the Company's and its
Subsidiaries' stockholders, directors and directors' committees, respectively,
and no such meeting has been held for which minutes have not been prepared and
are not contained in such minute books.
18
(t) Certain Business Relationships. Except as set forth in Section 3(t) of
the Company Disclosure Schedule, none of the Company, its Subsidiaries, Dalian
Fushi nor any their respective employees, officers, directors, agents,
representatives or Affiliates has been involved in any business arrangement or
relationship with the Company and its Subsidiaries (including Dalian Fushi)
within the past 36 months, and none of the Company, its Subsidiaries, Dalian
Fushi nor any their respective employees, officers, directors, agents,
representatives or Affiliates own any asset, tangible or intangible, which is
used in, or required or necessary for the conduct of, the businesses of the
Company and its Subsidiaries (including Dalian Fushi and the Business). There
are no loan, guarantee, cross-guarantee, pledge, credit or other similar
agreements, monies due, advances made or other funds transferred, between the
Companies or any of its Subsidiaries and Dalian Fushi, except those contemplated
in the Restructuring Agreements. Except as disclosed in Schedule 3(t), to the
best of Management's knowledge, none of the respective employees, officers,
directors, agents, representatives of the Company, any of its Subsidiaries or
Dalian Fushi has any direct or indirect ownership interest in any firm or
corporation with which the Company or any of its Subsidiaries (including Dalian
Fushi) is affiliated or with which the Company or any of its Subsidiaries
(including Dalian Fushi) has a business relationship, or any firm or corporation
that competes with the Company or any of its Subsidiaries (including Dalian
Fushi).
(u) Private Offering. Based on the representations provided by each
Investor in Section 4, the offer and sale of the Shares to each Investor is, and
the offer and sale of any Common Stock to each Investor pursuant to Section
2(c)(ii) will be, exempt from the registration and prospectus delivery
requirements of the Securities Act and any other securities Laws. Neither the
Company nor any Person acting on its behalf has offered or sold or will offer or
sell any securities, or has taken or will take any other action (including,
without limitation, any offering of securities of the Company under
circumstances that would require, under the Securities Act, the integration of
such offering with the offer and sale of the Shares) which would subject the
offer and sale of the Shares to the registration provisions of the Securities
Act.
(v) Use of Proceeds. The Company shall use the proceeds from the sale of
the Shares for the purpose(s) set forth in the use of proceeds schedule attached
hereto as Exhibit J.
(w) Powers of Attorney. Except as set forth in Section 3(w) of the Company
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of any of the Company or its Subsidiaries (including Dalian Fushi).
(x) Brokers' Fees. Except as set forth in Section 3(x) of the Company
Disclosure Schedule, neither the Company not any of its Subsidiaries (including
Dalian Fushi), not any of their shareholders, employees, officer or directors)
has any Liability to pay any fees or commissions or other consideration to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement, including any Liability or obligations for which the Investors can
become liable or obligated. Except as set forth in Section 3(x) of the Company
Disclosure Schedule, any such Liability will be paid by the Company prior to the
Closing.
(y) Certain Business Practices. None of the Company, its Subsidiaries,
Dalian Fushi, their officers, directors (or Persons in similar positions),
agents or employees or their respective representatives or Affiliates has (a)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended (if
applicable to such Person), or (b) violated any of the provisions of Section 999
of the Code or Section 8 of the Export Administration Act, as amended (if
applicable to such Person).
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(z) Environmental and Safety Laws. Since their inception, neither the
Company, its Subsidiaries nor Dalian Fushi have been, in violation of any
applicable Law relating to the environment or occupational health and safety,
where such violation would have a material adverse effect on the Business or
financial condition of any of the Company, any of its Subsidiaries or Dalian
Fushi. Each of Company, its Subsidiaries and Dalian Fushi have operated all
facilities and properties owned, leased or operated by it in material compliance
with the Environmental Laws and no Hazardous Materials have been stored, used,
disposed of, treated, released or discharged by any of the Company, its
Subsidiaries or Dalian Fushi in violation of Environmental Laws. As used herein,
"Environmental Laws" means all applicable, Laws governing, regulating or
otherwise affecting the environment, health or safety. As used herein, the term
"Hazardous Materials" means the existence in any form of polychlorinated
biphenyls, asbestos or asbestos containing materials, urea formaldehyde foam
insulation, oil, gasoline, petroleum, petroleum products and petroleum-derived
substances (other than in vehicles operated in the ordinary course of business),
pesticides and herbicides, and any other chemical, material or substance
regulated under any Environmental Laws.
(aa) Manufacturing and Marketing Rights. Except for the Restructuring
Documents, neither the Company, any of its Subsidiaries or Dalian Fushi has
granted rights to manufacture, produce, assemble, license, market or sell its
products or services to any other Person nor is bound by any agreement that
affects their exclusive right to develop, manufacture, assemble, distribute,
market or sell its products and services. There are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company, any of its Subsidiaries or Dalian
Fushi is a party or by which it or any its assets is bound that may involve (A)
provisions restricting or affecting the development, manufacture or distribution
of any their products or services, or (B) agreements not to compete with any
person or entity or not to engage in any particular line of business.
(bb) Employment of Wenbing Chris Wang. Wenbing Chris Wang shall remain in
the employ of Dalian Fushi in his current position for a period of one year
following December 13, 2005 and shall use his best efforts to enter into an
employment agreement with the Company pursuant to Section 6(i) and the Investors
hereby acknowledge that the employment agreement shall be in form and with such
terms as acceptable to the Company and CA.
(cc) Disclosure. The representations and warranties and statements made by
the Company, Dalian Fushi and Management in this Agreement are true, accurate,
correct and complete in every respect and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements and information contained herein not false or misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor, severally and not jointly, represents and warrants to the
Company that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement.
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(a) Organization and Standing. Heller represents and warrants for itself
that it is a limited liability company duly organized and validly existing under
the laws of the State of New Jersey, holding corporate power and authority to
own, operate and lease its assets to carry on its business as currently
conducted, to execute and deliver this Agreement and the Ancillary Agreements
and to carry out the transactions contemplated hereby and thereby. Each other
Investor represents and warrants for itself that it is a Entity duly organized
and validly existing under the laws of its jurisdiction of organization, holding
power and authority to own, operate and lease its assets to carry on its
business as currently conducted, to execute and deliver this Agreement and the
Ancillary Agreements and to carry out the transactions contemplated hereby and
thereby.
(b) Authorization of Transaction. Each of the Investors has full corporate
or partnership power and authority, as applicable (or capacity, if an
individual), to execute and deliver this Agreement and any applicable Ancillary
Agreement and to perform its obligations hereunder and thereunder. This
Agreement constitutes the valid and legally binding obligation of the Investor,
enforceable in accordance with its terms and conditions except to the extent
that such enforcement may be limited by bankruptcy, reorganization, insolvency
and other similar Laws and court decisions relating to or affecting the
enforcement of creditors rights generally and by the application of general
equitable principles. Except as otherwise required by applicable federal or
state securities Laws, the Investors need not provide any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
Governmental Body of any other Person in order to consummate the transactions
contemplated by this Agreement or any Ancillary Agreement.
(c) Brokers' Fees. No Investor has any Liability to pay any fees or
commissions or other consideration to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which the Company or any
of its Subsidiaries could become liable or obligated.
(d) No Registration. Other than as contemplated herein, each Investor
understands that the Shares and the shares of Common Stock issuable on the
exercise of the Warrants have not been registered under the Securities Act or
any state securities laws and will be issued in reliance upon exemptions
contained in the Securities Act or interpretations thereof and in the applicable
state securities laws, and cannot be offered for sale, sold or otherwise
transferred unless the Shares and the shares of Common Stock issuable on the
exercise of the Warrants subsequently are so registered or qualify for exemption
from registration under the Securities Act.
(e) Acquisition for Investment. The Shares and Warrants are being acquired
under this Agreement by each Investor in good faith solely for its own account,
for investment and not with a view toward distribution within the meaning of the
Securities Act. The Shares and Warrants will not be offered for sale, sold or
otherwise transferred by the Investor without either registration or exemption
from registration under the Securities Act and any applicable state securities
laws.
(f) Risks of Investment. Each Investor understands and is able to bear any
economic risks associated with such investment (including, without limitation,
holding the Shares and the shares of Common Stock issuable on the exercise of
the Warrants until the effectiveness of a registration statement covering the
Shares filed under the Securities Act).
(g) Accredited Investor Status. Each Investor is an "accredited investor"
within the meaning of Rule 502 of Regulation D promulgated under the Securities
Act.
(h) Disclosure of Information. Each Investor has had full access to all
the information they consider necessary or appropriate to make an informed
investment decision with respect to the Shares and Warrants to be purchased
under this Agreement. Each Investor further has had an opportunity to ask
questions and receive answers from the Company and Dalian Fushi regarding the
Business and of the Company regarding the terms of the offering of the Shares
and Warrants and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to any Investor or to
which such Investor had access. Each Investor has not relied on any oral
representation made by the Company, Dalian Fushi or any Subsidiary or any
officer, director, employee or agent of any of them.
21
(i) Investment Experience. Each Investor understands the risks of
investing in companies domiciled in the People's Republic of China and that the
purchase of the Shares and Warrants involves substantial risk.
5. REGISTRATION RIGHTS.
(a) Registration by the Company.
(i) Mandatory Registration. In addition to the registration
statement filed by the Company under the Securities Act for the registration of
the Common Stock issuable upon conversion of the Series B acquired by the
Investors at Closing (as required by Section 6(m)):
(A) in the event additional shares of Common Stock are
issuable pursuant to Section 2(c)(ii) the Company shall file a registration
statement (or a post-effective amendment to the registration required by Section
6(m)) to register such additional Shares) with the SEC under the Securities Act
for the registration of the Shares as promptly as practicable, but in no event
later than 30 days, after the determination of the issuance of the Shares
pursuant to Section 2(c)(ii); and
(B) any Investor acquiring shares of Common Stock (including
issuable upon conversion of shares of Series A) pursuant to Section 8(b) under
the Stock Escrow Agreement may request registration of such securities and the
Company shall file a registration statement (or a post-effective amendment to
the registration required by Section 6(m)) to register such additional
securities) with the SEC under the Securities Act for the registration of the
securities as promptly as practicable, but in no event later than 30 days after
receipt of the Investor's request.
(ii) Registration Statement Form. The Investors hereby acknowledge
that registrations under this Section 5(a) shall be on Form SB-2 or such other
appropriate registration form of the SEC as shall be reasonably selected by the
Company and approved by CA, which approval shall not be unreasonably withheld.
The Company shall provide drafts of the Registration Statement proposed to be
filed by it to the Investors in advance of the filing thereof and provide the
Investors with a reasonable amount of time to review and comment on the same
prior to its filing
(iii) Effective Registration Statement. A registration required
pursuant to this Section 5(a) shall not be deemed to have been effected unless
the Registration Statement has been declared effective by the SEC and has
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all of the Shares covered by such Registration
Statement until such time as all of the Shares have been disposed of in
accordance with the intended methods of disposition by each Investor set forth
in such Registration Statement (unless the failure to so dispose of such Shares
shall be caused solely by reason of a failure on the part of the Investors).
22
(iv) Expenses; Taxes. All expenses (other than fees of counsel to
the Investors) incurred in connection with registrations, filings or
qualifications of Shares pursuant to this Section 5, including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company, shall be
borne by the Company.
(b) Priority Registrations. Notwithstanding anything else set forth herein
and subject to the limitations set forth below, the Registration Statement may
include, in addition to the Shares, the shares of Common Stock that may be
acquired by Glenn A. Little pursuant to the exercise of a warrant acquired by
him under that certain Consulting Agreement, dated November 18, 2005, which
shares shall constitute no more than 0.4% of the capitalization of the Company
as set forth in Section 3(r) of the Company Disclosure Schedule; provided,
however, (i) that any such inclusion shall not affect the rights of the
Investors pursuant to this Section 5; and (ii) if the Company fails to provide
Mr. Little sufficient notice regarding, or take appropriate actions to include
Mr. Little's shares in, the Registration Statement, such failure shall in no way
affect, change or delay, and Mr. Little shall have no rights regarding, the
registration procedures described in this Section 5.
(c) Registration Procedures. The Company shall, as expeditiously as
possible:
(i) use its best efforts to cause the Registration Statement filed
pursuant to Section 6(m) to be declared effective by the SEC within 90 days and
not later than 120 days from the date of the initial filing;
(ii) prepare and file with the SEC any other requisite Registration
Statement pursuant to Section 5(a) and thereafter use its best efforts to cause
such Registration Statement to be declared effective by the SEC within 90 days
and not later than 120 days from the date of the initial filing;
(iii) with regard to (i) and (ii), after the 120th day after the
date of the initial filing, and for each 30-calendar day period thereafter in
which the Registration Statement fails to be declared effective, the Company
shall issue to each Investor a number of shares of Common Stock equal to 3% of
such Investor's Shares covered by such Registration Statement at that time,
which Shares shall be included in the Registration Statement and used in the
calculation of any additional issuance pursuant to this Section 5(c)(iii);
(iv) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
the Shares covered by such Registration Statement until the earlier of the time
as all of such Shares have been disposed of in accordance with the intended
methods of disposition by the Investors set forth in such Registration Statement
or the date that the Shares are eligible for resale pursuant to the provisions
of Rule 144 under the Securities Act;
(v) furnish to the Investors' counsel copies of any correspondence
between the Company and the SEC with respect to such Registration Statement or
amendments or supplements thereto filed pursuant to this Section 5.
(vi) furnish such number of conformed copies of such Registration
Statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained in
such Registration Statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents, as the Investors may reasonably require.
23
(vii) use its best efforts to (A) register or qualify the Shares
under such other securities or blue sky laws of such states and jurisdictions
where an exemption is not available and as the Investors shall reasonably
request, (B) keep such registration or qualification in effect for so long as
such Registration Statement remains in effect, and (C) take any other action
which may be reasonably necessary or advisable to enable the Investors to
consummate the disposition in such jurisdictions of the securities to be sold by
the Investors, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(vii) be obligated to be so qualified or to consent to general service of
process in any such jurisdiction;
(viii) use its best efforts to cause all Shares covered by such
Registration Statement to be registered with or approved by such other federal
or state governmental agencies or authorities as may be necessary in the opinion
of counsel to the Company and counsel to the Investors to enable the Investors
to consummate the disposition of such Shares;
(ix) notify the Investors at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and at the request of
the Investors promptly prepare and furnish to it a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made;
(x) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC;
(xi) provide and cause to be maintained a transfer agent and
registrar for all the Shares covered by such Registration Statement from and
after a date not later than the effective date of such registration;
(xii) provide a CUSIP number for all Shares covered by such
Registration Statement not later than the effective date of the Registration
Statement;
(xiii) use its best effort to avoid the issuance of, or if issued,
to obtain the withdrawal of, any order enjoining or suspending the use or
effectiveness of such Registration Statement or suspending the qualification (or
exemption from qualification) of any of the Shares for sale in any jurisdiction,
as promptly as reasonably practicable; and
(xiv) use its best efforts to list the Shares on the American Stock
Exchange or any other national securities exchange on which the shares of the
same class covered by such Registration Statement are then listed or for which
the Shares and the Company qualifies, and, if no such shares are so listed, on
any national securities exchange on which the Common Stock is then listed.
24
Each Investor agrees by acquisition of the Shares that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
subdivision (ix) of this Section 5(c), such holder will forthwith discontinue
such disposition of the Shares pursuant to the Registration Statement until
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (ix) of this Section 5(c) and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies of
the prospectus then in such holder's possession relating to the Shares current
at the time of receipt of such notice, other than permanent file copies.
(d) Lock-up. After the Closing Date of this Agreement and prior to the
effectiveness of a Registration Statement pursuant to Section 6(m), each
Investor agrees to enter into standard lock-up agreement restricting the sale of
50% of each Investor's Shares covered by the Registration Statement for a period
of 6 months commencing from the Closing Date of this Agreement. The terms and
form of the lock-up agreement shall be mutually agreeable among the Investors
and the Company.
(e) Indemnification.
(i) Indemnification by the Company. With regard to any Registration
Statement, the Company, Dalian Fushi and Management will, and hereby do, jointly
and severally, indemnify and hold harmless each Investor and its respective
directors, officers, partners, agents and Affiliates, against any Adverse
Consequences, joint or several, to which such Investor or any such director,
officer, partner, agent, Affiliate or controlling person may become subject
under the Securities Act or otherwise, including, without limitation, the fees
and expenses of legal counsel, insofar as such any Adverse Consequences arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company will reimburse such Investor and each such director,
officer, partner, agent, Affiliate and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such any Adverse Consequences; provided, however, that the Company
shall not be liable in any such case to the extent that any such Adverse
Consequences arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Investor,
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Investor or any such director, officer, partner,
agent, Affiliate or controlling person and shall survive the transfer of such
securities by the Investor.
(ii) Indemnification by the Investors. As a condition to including
the Shares in the Registration Statement, each Investor will, and hereby does,
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 5(e)(i)) each other Investor, the Company, and each director of
the Company and each officer of the Company, with respect to any statement or
alleged statement in or omission or alleged omission from such Registration
Statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such Investor
specifically stating that it is for use in the preparation of such Registration
Statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement; provided, however, that the Liability of such
indemnifying party under this Section 5(e)(ii) shall be limited to the amount of
net proceeds actually received by such indemnifying party giving rise to such
Liability.
25
(v) Other Indemnification. Indemnification and contribution similar
to that specified in the preceding subdivisions of this Section 5(e) (with
appropriate modifications) shall be provided by the Company and each Investor
with respect to any required registration or other qualification of securities
under any federal or state law or regulation of any governmental authority other
than the Securities Act.
(vi) Indemnification Payments. The indemnification and contribution
required by this Section 5(e) shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or Adverse Consequence is incurred.
6. POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing.
(a) General. In case at any time after the Closing any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under this
Agreement).
(b) American Stock Exchange. Promptly following Closing, the Company
(which will be assisted by CA pursuant to the December 13 Stock Purchase
Agreement) shall prepare and submit a listing application to the American Stock
Exchange and use its reasonable best efforts to have such listing approved and
effective as soon as practicable after the effectiveness of the Registration
Statement filed pursuant to Section 6(m).
(c) Board of Directors. Within 90 days following Closing, the Company and
the current management and stockholders of Dalian Fushi after consultation with
the Investors (and the Investors acknowledge that similar consultation with CA
and the Initial Investors is required under the December 13 Stock Purchase
Agreement), shall nominate a seven person Board of Directors of the Company and
take all actions and obtain all consents, authorizations and approvals which are
required to be obtained in order to effect the election of such Persons. Of such
seven member Board of Directors, (i) two members shall be members of the current
management of Dalian Fushi, (ii) one member shall represent Kuhns Brothers,
Inc., the Company's investment bankers, pursuant to an existing agreement, (iii)
and at least four members shall be independent directors as determined pursuant
to the American Stock Exchange Company Guide (the Investors hereby acknowledge
that this requirement may be waived or amended by Investors and the Initial
Investors representing a majority of the outstanding Shares then held by
Investors and the Initial Investors if the Company is unable to obtain a listing
of its Common Stock on the American Stock Exchange within six months following
the Closing or such other period of time as acceptable to CA). The Investors
further acknowledge that the member to be elected chairman of the audit
committee and the member to be elected vice-chairman of the board (who will also
serve as chairman of the corporate governance committee) must be approved in
advance by CA, which approval not to be unreasonably withheld. Each director's
compensation shall be determined after consultation with the Investors and the
Initial Investors..
26
(d) Board of Advisors. Promptly following Closing, and in addition to its
Board of Directors, the Company shall establish a five-member board of advisors
consisting of the individuals set forth in Section 6(d) of the Company
Disclosure Schedule. The Investors hereby acknowledge that if for any reason one
or more of these individuals is unable or unwilling to serve on the initial
board of advisors, the Company shall consult with CA as to substitute member(s)
and any substitute member(s) must be approved in advance by CA, which approval
not to be unreasonably withheld.
(e) Chief Financial Officer. The Investors acknowledge that, promptly
following Closing, the Company shall retain a chief financial officer acceptable
to, and after consultation with, CA; provided, however, that retention of Dalian
Fushi's current chief financial officer as the Company's chief financial officer
under an employment agreement pursuant to Section 6(i) shall satisfy this
Section 6(e).
(f) Name Change; Reverse Stock Split. Promptly following Closing, the
Company shall take all actions and obtain all consents, authorizations and
approvals, including any Governmental Authorizations, which are required to be
obtained in order to (i) change the name of the Company to Fushi International,
Inc., and (ii) effect a reverse stock split of the Common Stock so that the
Company has a sufficient number of authorized and unissued shares of Common
Stock, the details of which are set forth in Section 6(f) of the Company
Disclosure Schedule, to permit the conversion of all outstanding shares of
Series B acquired by the Investors pursuant to this Agreement.
(g) Employee Stock Ownership Plan. The Company shall reserve for issuance
20,000,000 shares of Common Stock under an approved and qualified employee stock
ownership plan, terms of which shall be determined by the compensation committee
of the Board of Directors of the Company (as constituted pursuant to Section
6(c)).
(h) Executive Search. The Investors acknowledge that, promptly following
the Closing, the Company shall retain one or more independent professional
executive search firm, each as acceptable to CA and selected from a list of
proposed firms provided by CA, to assist in the recruitment for the members to
be added to the Board of Directors of the Company pursuant to Section 6(c)
(i) Employment Agreements. The Company shall use its best efforts to
promptly enter into employment agreements with Wenbing Chris Wang and the other
members of Management (and the Investors acknowledge that the other members of
Management will be designated and by CA and the employment agreements will be
with such terms as acceptable to CA).
(j) Transfer of Dalian Fushi Employees. The Company, WOFE and Dalian Fushi
shall use their best efforts to promptly transfer the employment of all
employees of Dalian Fushi to WOFE in accordance with applicable Laws. WOFE will
enter into an employment agreement with each such transferred employee (the
terms of which shall be acceptable to CA) and pay all social security,
insurance, housing and other applicable fees and costs required under applicable
Law.
(k) Compliance with Law. The shareholder(s) of the WOFE shall comply with
Bulletin No. 75 Notice issued by the PRC State Administration of Foreign
Exchange, including but not limited to, the obligation to file disclosure forms
with respect to their ownership status in the Company on or before March 31,
2006, and the obligation to transfer any dividends or profits they received
offshore to the PRC within 180 days upon the receipt of such dividends or
profits.
27
(l) Completion of Restructuring. Commencing at the Closing, the Company,
WOFE and Dalian Fushi shall use their best efforts to complete in all respects
the restructuring and related transactions contemplated by the Restructuring
Agreements, including without limitations, by taking the following actions and
obtaining the following approvals and certificates under applicable Laws, all of
which shall be completed within 15 days of the Closing (the "Restructuring
Completion Date"):
(i) WOFE shall obtain an audit of its registered capital by an
accounting firm duly qualified to conduct such audits in the People's Republic
of China and a capital verification report from such firm (the "Capital
Report");
(ii) WOFE shall file the Capital Report with the PRC State
Administration for Industry and Commerce in Dalian, People's Republic of China;
(iii) Immediately following the registered capital verification
process is completed, WOFE shall transmit to Dalian Fushi the full purchase
price for the assets to be purchased by it under the Restructuring Agreements
and upon receipt of the purchase price, the title for the Acquired Assets will
be transferred to WOFE;
(iv) WOFE shall arrange for, and have completed, an environmental
report and inspection with respect to the machinery and equipment purchased by
the WOFE pursuant to the Restructuring Agreements and as required under
applicable Laws;
(v) Dalian Fushi shall commence the patent transfer procedure as
contemplated in the Restructuring Agreements, which procedure is estimated to
take three to five months to complete; prior to the effectiveness of the patent
transfer, the Company and its Subsidiaries shall have the exclusive legal right,
royalty free, to use all of the patents specified in the Restructuring
Agreements. Dalian Fushi shall execute any license agreements required by the
Company that the Company deems necessary or advisable;
(vi) WOFE shall obtain a new business license allowing it to conduct
the Business;
(vii) Dalian Fushi shall arrange for, and have completed, the
granting of a secondary lien on the Leased Assets to WOFE (only up to the amount
permissible under applicable Laws);
(viii) Dalian Fushi shall send a written notice to its existing
customers seeking consent to the assignment of all contracts of Dalian Fushi to
WOFE. Dalian Fushi shall use its best efforts to obtain such consent. To the
extent that customers agree to the assignment, Dalian Fushi shall assign and
transfer all such contracts to WOFE; to the extent that customers do not agree
to assign the contracts to WOFE, Dalian Fushi shall perform the contracts with
WOFE's assistance as specified under the Restructuring Agreements and continue
to seek such consents;
(ix) As soon as the new business license for WOFE is obtained, WOFE
and Dalian Fushi shall complete for WOFE the tax registration with, and obtain a
tax certificate from, the tax bureau;
28
(x) As soon as the new business license for WOFE is obtained, WOFE
and Dalian Fushi shall complete the registration with customs authorities, if
applicable; and
(xi) WOFE and Dalian Fushi shall complete other registrations and
filings with such competent authorities that are necessary for the conduct of
the Business by the Company and its Subsidiaries and required by applicable
Laws.
(m) Filing of Registration Statement. The Company shall file a
Registration Statement with the SEC under the Securities Act for the
registration of the Common Stock issuable upon conversion of the Series B
acquired by the Investors within 5 days after the Closing Date under this
Agreement.
(n) Company Bylaws. The Company shall use its best efforts to obtain
shareholder approval for, and take all steps necessary to adopt, amended and
restated bylaws (and the Investors acknowledge that the bylaws must be
acceptable to CA) within 60 days after the Closing, and prepare and file a
preliminary Schedule 14C information statement relating to the adoption and
amendment of the Company bylaws within 15 days from the Closing Date.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) Conditions to Obligation of the Investors. The obligation of each of
the Investors to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 shall
be true and correct in all material respects;
(ii) the certificate of designation containing the terms of the
Series B as set forth in Exhibit A shall be filed;
(iii) the certificate of designation containing the terms of the
Series A Preferred Stock of the Company as set forth in Exhibit A shall be
filed;
(iv) the Company shall have completed an audit on the Company and
its Subsidiaries (including Dalian Fushi) conducted by Jimmy H. Cheung & Co. for
the fiscal years ended December 31, 2004 and December 31, 2003, and the Company
shall have received an unqualified audit opinion;
(v) the Company shall have completed a share exchange with all of
the stockholders of DPI, whereby the Company shall become the sole owner of DPI
and sole indirect owner of WOFE;
(vi) the Company, Dalian Fushi and Management shall have delivered
to the Investors a certificate to the effect that each of the conditions
specified in Section 7(a)(i)-(v) is satisfied in all respects; all actions to be
taken by the Company in connection with consummation of the transactions
contemplated by this Agreement and all certificates and other documents
reasonably required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Investors.
29
The Investors may waive any condition specified in this Section 7(a) if they
execute a writing so stating at the Closing.
(b) Conditions to Obligation of the Company, Dalian Fushi and Management.
The obligation of the Company, Dalian Fushi and Management to consummate the
transactions to be performed by them in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4 shall
be true and correct in all material respects (for purposes of this Section, any
representation or warranty that is qualified by a materiality standard shall be
read without regard to any such materiality qualification as if such
qualification were not contained therein);
(ii) the Investors shall have delivered to the Company a certificate
to the effect that the condition specified above in Section 7(b)(i) is satisfied
in all respects;
(iii) the Company shall have received the Ancillary Agreements
executed by the Investors, as applicable; and
(iv) all actions to be taken by the Investors in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents reasonably required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company.
The Company may waive any condition specified in this Section 7(b) if it
executes a writing so stating at the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties. All the representations,
warranties, covenants, indemnities and other agreements contained in this
Agreement shall survive two years from the effective date of the Registration
Statement filed pursuant to Section 6(m).
(b) Indemnification Provisions for Benefit of the Investors. In addition
to any indemnification under Section 5, in the event the Company, Dalian Fushi
or Management breaches any of its representations, warranties and covenants
contained herein, the Company, Dalian Fushi and Management, jointly and
severally, agree to indemnify, defend and hold harmless the Investors and any of
their directors, officers, employees, agent, representatives or Affiliates
(each, an "Indemnified Party") from and against the entirety of any Adverse
Consequences the Investors may suffer through and after the date of the claim
for indemnification resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the alleged breach). The aggregate Liability of
the Company and Dalian Fushi under this Section 8(b) shall be limited as to each
Investor to the amount of the Purchase Price paid by such Investor as set forth
on Exhibit C; provided, however, that this limitation on Liability shall not
apply to any indemnification of the Investors pursuant to Section 5. To satisfy
any rights to indemnification pursuant to this Section 8 or Section 5, claims by
the Indemnified Party may be made for (i) cash or (ii) Dual Purposes Escrow
Shares pursuant to the terms and provisions of the Stock Escrow Agreement, as
amended, in each case at the option and in the sole discretion of the
Indemnified Party. Notwithstanding anything to the contrary in this Agreement,
none of the Indemnified Parties shall be entitled to assert any right to
indemnification under this Section 8(b) until the aggregate Liability relating
to any Adverse Consequences claimed by one or more of the Indemnified Parties
exceeds $100,000 (whether resulting from one claim or a series of claims,
separate or related), and in such event the Indemnified Parties shall be
entitled to recover the full amount of all such Liability from the first dollar
without regard to the $100,0000 minimum threshold and this minimum threshold
shall not apply to any subsequent claims by the Indemnified Parties under this
Section 8(b).
30
(c) Matters Involving Third Parties.
(i) If any third party shall notify any Indemnified Party with
respect to any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under Section
5 or this Section 8, then each Indemnified Party shall promptly notify the
Indemnifying Party thereof in writing; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is actually and materially
prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii), (A) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (B) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Parties need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in Section 5 or this Section 8, as applicable.
31
9. MISCELLANEOUS.
(a) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(b) Entire Agreement. This Agreement (including any Ancillary Agreements)
constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject matter hereof.
(c) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that any Investor may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Investor shall no longer
remain responsible for the performance of all of its obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices, consents, waivers and other communications under
this Agreement must be in writing and will be deemed given to a Party when (a)
delivered to the appropriate address by hand or by nationally recognized
overnight courier service (costs prepaid), (b) sent by facsimile or e-mail with
confirmation of transmission by the transmitting equipment, or (c) received or
rejected by the addressee, if sent by certified mail, return receipt requested;
in each case to the following addresses, facsimile numbers or e-mail addresses
and marked to the attention of the individual (by name or title) designated
below (or to such other address, facsimile number, e-mail address or individual
as a party may designate by notice to the other parties):
If to the Investors:
Heller Capital Investments, LLC
700 East Palisades Avenue
Englewood Cliffs, NJ 07632
Attention: Ronald I. Heller
Telephone No.: 201-816-4235
Facsimile No.: 201-569-5014
E-mail: smallcap777@yahoo.com
32
If to the Company, Dalian Fushi or Management:
Parallel Technologies, Inc.
558 Lime Rock Road
Lakeville, Connecticut 06039
Attention: John D. Kuhns
Telephone No.: 860-435-7000
Facsimile No.: 860-435-6540
E-mail: jdkuhns@kuhnsbrothers.com
with a copy (which shall not constitute notice) to:
Guzov Ofsink, LLC
600 Madison Avenue, 14th Floor
New York, New York 10022
Attention: Darren L. Ofsink
Telephone No.: (212) 371-8008
Facsimile No.: (212) 688-7273
E-mail: dofsink@golawintl.com
(g) Controlling Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
choice of law provisions, statutes, regulations or principles of this or any
other jurisdiction. Each Party hereby irrevocably submits to the exclusive
jurisdiction (including personal jurisdiction) of the state and federal courts
of the State of New York for any action, suit or proceeding arising in
connection with this Agreement, and agrees that any such action suit or
proceeding shall be brought only in such court (and waives any objection based
on forum non conveniens or any other jurisdiction to venue therein). Process in
any Proceeding under this Agreement may be served on any Party anywhere in the
world. Notwithstanding the foregoing, nothing in this Agreement shall preclude
the Investors the right to commence Proceedings relating to this Agreement in
any foreign jurisdiction, including the People's Republic of China.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Company and Heller. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(i) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. Furthermore, in lieu of such invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
(j) Expenses. The Company shall bear all costs and expenses relating to
the acquisition of assets of, and certain additional rights of and to, Dalian
Fushi, provided that the Company shall not bear any Investors' costs and
expenses in connection with the transactions contemplated by this Agreement and
any Ancillary Agreement (including legal fees and expenses of legal counsel to
the Investors). Except as otherwise provided elsewhere in this Agreement, each
of the Parties will bear his or its own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
33
(k) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(l) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(m) Specific Performance. Each of the Parties acknowledges and agrees that
the Investors would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the
Investors shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which they may be entitled, at law or
in equity.
(n) Disputes; Arbitration. Subject to Section 9(n), any issue, dispute,
Proceeding or controversy arising out of or relating to this Agreement (or any
Ancillary Agreement), its alleged breach or its subject matter (a "Dispute")
shall be resolved pursuant to this Section 9(o).
(i) Any Dispute shall first be referred to Heller as a
representative of the Investors and a representative of the Company who has
authority to settle the controversy for resolution between such Parties, if
possible. Those Persons may, if they desire, consult outside experts or a
mutually respected disinterested Person for assistance in arriving at a
resolution.
(ii) If any Dispute cannot be resolved after good faith negotiation,
either Party or the Indemnifying Party or its applicable Affiliate, may, by
written notice ("Arbitration Notice") to the other, demand to have the claim
finally and exclusively settled by confidential and binding arbitration in New
York, New York, governed by the laws of the State of New York and in accordance
with the commercial rules of arbitration of the American Arbitration Association
in effect at that time. A total of three arbitrators shall be appointed. Within
10 days after dispatch of the Arbitration Notice, each of the applicable
Investors and the Company shall appoint one arbitrator, and the two so chosen
shall select a third within 15 days of the expiration of the 10-day period. Each
arbitrator shall have at least 10 years of experience in an industry or
profession related to the subject matter involved in the Dispute, and all
arbitration proceedings shall be held, and a transcribed record thereof shall be
prepared, in English. Neither Party involved in the arbitration shall have the
right to conduct discovery of the other (except as the arbitrators may so order
on the application of either Party), but shall furnish to the arbitrators such
information as the arbitrators may reasonably request to facilitate the
resolving of the Dispute. The arbitrators shall announce the award and the
reason therefor in writing within three months from the date of the selection of
the third arbitrator, or such later date as the Parties may agree upon in
writing. The losing Party on a specific claim or counterclaim shall bear all
expenses of the arbitration, including those relating to the arbitrators, and
attorney's fees, experts and presentation of proof with respect to that claim or
34
counterclaim. Any award granted by the arbitrators shall be final and binding
upon the Parties and shall constitute the sole and exclusive remedy for any
dispute between the Parties. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. The Parties expressly
submit to the non-exclusive jurisdiction of the courts of the United States of
America for the enforcement of any arbitration award.
(Remainder of page intentionally left blank)
35
The Parties have executed and delivered this Agreement as of the date
indicated in the first sentence of this Agreement.
PARALLEL TECHNOLOGIES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
DALIAN FUSHI BIMETALLIC MANUFACTURING
COMPANY, LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MANAGEMENT OF DALIAN FUSHI BIMETALLIC
MANUFACTURING COMPANY, LTD.
----------------------------------------
Fu Li
----------------------------------------
Yang Yue
----------------------------------------
Yang Xishan
----------------------------------------
Chunyan Xu
----------------------------------------
Wenbing Chris Wang
(Signatures continue on following page)
A-1
THE INVESTORS
HELLER CAPITAL INVESTMENTS, LCC
By:
-------------------------------------
Name: Ronald I. Heller
Title:
----------------------------------
(Signatures continue on following page)
A-2
HAYDEN COMMUNICATIONS, INC.
By:
------------------------------------
Name: Matt Hayden
Title:
---------------------------------
(Signatures continue on following page)
A-3
----------------------------------------
Brett Maas
A-4
EXHIBIT A
Certificates of Designations, Preferences and Rights
for Series A and Series B Convertible Preferred Stock
(See attached)
A-5
EXHIBIT B
Form of Warrant
(See attached)
B-1
EXHIBIT C
Investors
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage Shares of
Among All Series B Common Stock Percentage of Number of
Investors Convertible Issuable upon Outstanding Shares
(based on Preferred Conversion Voting Capital Issuable upon
Names of Purchase $12,000,000 Stock Post Reverse Stock Post Exercise of
Investors Price total) Purchased Split Reverse Split Warrant
- ------------------------------------------------------------------------------------------------------------------------------------
Initial Investors under December 13 Stock Purchase Agreement
- ------------------------------------------------------------------------------------------------------------------------------------
Chinamerica Fund, $1,700,000 0.141666667 30,518.52 602,083.36 3.01% 301,041.67
LP
- ------------------------------------------------------------------------------------------------------------------------------------
Chinamerica
Dalian Fushi
Acquisition, LLC $1,000,000 0.083333333 17,952.07 354,166.68 1.77% 177,083.33
- ------------------------------------------------------------------------------------------------------------------------------------
Pope Asset
Management LLC $3,500,000 0.291666667 62,832.25 1,239,583.39 6.198% 619,791.67
- ------------------------------------------------------------------------------------------------------------------------------------
Renaissance US
Growth
Investment Trust $1,000,000 0.083333333 17,952.07 354,166.68 1.77% 177,083.33
- ------------------------------------------------------------------------------------------------------------------------------------
BFS US Special
Opportunities
Trust PLC $1,000,000 0.083333333 17,952.07 354,166.68 1.77% 177,083.33
- ------------------------------------------------------------------------------------------------------------------------------------
John Peter Selda $100,000 0.00833333 1,795.20 35,416.53 0.17% 17,708.33
- ------------------------------------------------------------------------------------------------------------------------------------
MidSouth Investor
Fund LP $500,000 0.041666667 8,976.04 177,083.34 0.885% 88,541.67
- ------------------------------------------------------------------------------------------------------------------------------------
Lyman O. Heidtke $125,000 0.010416667 2,244.01 44,270.86 0.22% 22,135.42
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Street Fund
LP $700,000.00 0.05833333 12,566.45 247,916.68 1.24% 123,958.33
- ------------------------------------------------------------------------------------------------------------------------------------
Fred L. Astman
Wedbush Sec Inc.
Cust IRA Rollover
10/13/92 $350,000.00 0.029166667 6,283.22 123,958.34 0.62% 61,979.17
- ------------------------------------------------------------------------------------------------------------------------------------
Barron Partners LP $1,250,000 0.104166667 22,440.09 442,708.40 2.21% 221,354.17
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Total $11,225,000 94% 201,511.98 3,975,520.83 19.87% 1,987,760
- --------- ----------- --- ---------- ------------ ------ ---------
- ------------------------------------------------------------------------------------------------------------------------------------
Investors under this Agreement
- ------------------------------------------------------------------------------------------------------------------------------------
Heller Capital $650,000 0.052083333 11,220.04 221,354.17 1.107% 110,677.08
Investments, LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Hayden
Communications,
Inc. $100,000 0.008333333 1,795.21 35,416.67 0.18% 17,708.33
- ------------------------------------------------------------------------------------------------------------------------------------
Brett Maas $50,000 0.004166667 897.60 17,708.33 0.089% 8,854.17
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Total $775,000 6% 13,912.85 274,479.17 1.37% 137,240
- --------- -------- -- --------- ---------- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Total $12,000,000 100% 215,424.84 4,250,000.00 21.25% 2,125,000
===== =========== ==== ========== ============ ====== =========
- ------------------------------------------------------------------------------------------------------------------------------------
C-1
EXHIBIT D
Intentionally Omitted
D-1
EXHIBIT E(1)
Stock Escrow Agreement
(See attached)
EXHIBIT E(2)
Amendment to Stock Escrow Agreement
(See attached)
E-1
EXHIBIT F
PR Escrow Agreement
(See attached)
F-1
EXHIBIT G
(Intentionally Omitted)
G-1
EXHIBIT H
Financial Statements
(See attached)
H-1
EXHIBIT I
Restructuring Agreements
(See attached)
I-1
EXHIBIT J
Use of Proceeds
(See attached)
J-1